Sell a flat (leasehold) or a house (freehold) to fund new property?

Chris_derby

Hi,

My wife has a flat (leasehold) in her name that she use to live in before she moved in with me a few years ago. We’ve rented the flat out ever since and it has been paying for itself and making a little profit while we’ve been living in my house (freehold) in my name.

A property has come up for sale that we have wanted for years and we’re just wondering what to do with our current properties to fund the new house as the mortgage will be much larger. Our options are:

1) Sell my house and keep my wife’s flat to carry on renting it out. The equity will be enough for to put in the new mortgage.
2) Sell my wife’s flat and keep my house and rent it out. There’s probably not enough equity in the flat for the new mortgage so would probably have to take some out my house maybe.

3) Sell both my house and my wife’s flat, our mortgages combined should fund the new house.

Financially option 1 is achievable, as the equity in my house would be a good chunk towards the new mortgage.

But the only thing that worries me is the flat is leasehold and I sort of feel that is dead money. Is that correct? What’s people’s thoughts and what’s the end game with leasehold properties? Once the mortgage has been paid off and lease is expired. Do we lose the money that has been put into the flat?

Thanks for the advice!

zagubov

Chris_derby said:

But the only thing that worries me is the flat is leasehold and I sort of feel that is dead money. Is that correct? What’s people’s thoughts and what’s the end game with leasehold properties? Once the mortgage has been paid off and lease is expired. Do we lose the money that has been put into the flat?

Thanks for the advice!

Depends on how many years there are left on the lease. You would pay the freeholder to extend the lease and you should do this before the remaining lease falls below about eighty years, as it then becomes very expensive.
You can ask for a lease extension through a statutory route after you've owned the lease for two years and the price is capped.
You could also ask the freeholder for an extension at any time but they could charge any price they liked.

The main site covers this in detail.

Slithery

1. You won't have the hassle of having to evict the tenant(s) before marketing the property. If they don't wish to leave then it could well take you until 2022 to get rid of them.
2. You may be well be liable for the extra 3% SDLT for additional properties.
3. You'll still need to evict the tenant before marketing the flat.

I'd go for option 1.

Rambosmum

The flat will likely be harder to sell, and you will have to either restrict your pool of potential buyers to landlords or try and get the tenants out ASAP, which unless you either pay them off or they are very, very nice is unlikely to be easy due to the 6 month notice period currently in place. 
Selling the house will likely be faster and easier, as well as achieving you aim. 

ARH_2

There may be some Capital Gains Tax to pay on the sale of the flat which has been let out, which would further favour option 1, but might just be kicking the CGT can down the road. 

eddddy

Chris_derby said:

A property has come up for sale that we have wanted for years and we’re just wondering what to do with our current properties to fund the new house as the mortgage will be much larger. Our options are:

TBH, you're not in a great position to make an offer on that property - you're not even close to being proceedable.

• You'd need to sell either one or two properties - and neither are even on the market yet. Let alone under offer. (Most sellers won't take offers seriously, unless the person making the offer already has their property under offer - along with a mortgage arranged in principle.)

• Even worse - one of your properties has tenants in, who will probably need to be evicted before you can sell. (Unless you decide to sell it tenanted.)

I guess you could try getting your property (or properties) on the market really quickly at very 'realistic' (i.e. cheap) prices, in order to get quick offers.  But if you're not quick enough, and your 'dream' house gets sold to somebody else before you're proceedable - what would you do?